Farmland Values: On A Tipping Point?

The same storyline continues for farmland values: stable. But could values be headed South? ( AgWeb )

The same storyline continues for farmland values: stable. For 2018, values for good farmland in the upper Midwest showed almost no change from a year ago, according to a recent report from the Federal Reserve Bank of Chicago.
For the fourth quarter of 2018, there were no year-over-year changes in agricultural land values in Illinois, Indiana and Wisconsin. Iowa’s farmland values dropped by 1%. For the region, farmland values were up 1% in the fourth quarter of 2018 relative to the third quarter but flat from January 2018.

Chicago Fed - Changes in Farmland Values
Source: Federal Reserve Bank of Chicago

After accounting for inflation, the District actually experienced a yearly decrease of 2% percent in farmland values for 2018, according to David Oppedahl, senior business economist for the region. 

“This was the fifth straight annual real decline in District farmland values—the longest downturn since the 1980s,” Oppedahl writes. “The District’s farmland values fell 13% percent in real terms from their peak in 2013 to the end of 2018. But the decrease in agricultural land values over this span was just 6% percent in nominal terms.

Annual Real Change in Seventh District Farmland Values

Annual real change in Seventh District farmland values

Source: Federal Reserve Bank of Chicago

Strong crop yields in the region supported farmland values in 2018. Yet, livestock and dairy operations continue to see significant financial challenges.

“Dairy is the most stressed sector—financial stress and the tough January weather have many of our farmers ready to sell out,” commented a Wisconsin banker.

Another Wisconsin banker reported, “There was an increase in voluntary liquidations this past year.” 

There were some trends, Oppedahl reported, counteracting the downward pull on farmland values from declining livestock prices. “Survey respondents mentioned that available farmland for sale continued to be in limited supply, plus nonfarm investors were bidding up farmland values in some areas.”

Although 75% of the responding agricultural bankers, which serve the northern two-thirds of Illinois, Indiana, Iowa, the lower peninsula of Michigan and southeastern Wisconsin, expected farmland values to be stable during the January through March period of 2019, nearly all of the rest expected farmland values to move down.

Credit Conditions Continue to Deteriorate 

For the end of 2018, deteriorating agricultural credit conditions continued, according to area bankers. Repayment rates on non-real-estate farm loans decreased in the fourth quarter of 2018 relative to the same period of 2017, and rates of loan renewals and extensions increased. 

The share of the District farm loan portfolio indicated as having “major” or “severe” repayment problems was 6.6% in the fourth quarter of 2018—the highest such share since 1999. 

“The rising interest rate environment is beginning to cause repayment problems,” reported an Iowa banker.

At the start of 2019, survey respondents indicated that only 2.4% (a bit lower than a year ago) of their farm customers with operating credit in 2018 were not likely to qualify for new operating credit in the year ahead. Additionally, the majority of survey respondents anticipated capital expenditures by farmers would be lower in the year ahead compared with the year just ended (for the sixth year in a row).


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